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Study: Hospital Mergers Bring on Higher Costs for Private Payors, Employers

Hospital consolidation is allowing many organizations to obtain higher payments from private payors, consequently raising the cost of healthcare, according to a new study from the National Institute for Healthcare Management.

The study author analyzed 27 different hospital markets across eight states. Markets were either classified as concentrated (where consolidation is high) or competitive (where little consolidation has occurred). The author used individual data from 61 hospitals for patients treated during 2008 for any of six high-cost inpatient cardiac or orthopedic procedures. Those procedures included angioplasty, pacemaker insertion, knee replacement, hip replacement, lumbar fusion and cervical fusion.

The study concluded that hospitals in concentrated markets charge significantly higher prices to private insurers compared to their peers in more competitive markets. For example, the average hospital in a concentrated market received $32,411 for each coronary angioplasty, while the average hospital in a competitive market received $21,626 for that same procedure.

These payments also lead to higher contribution margins for concentrated markets. The average hospital in a concentrated market received commercial payments that were more than $20,000 over the direct costs of the angioplasty. That led to a contribution margin that was 90 percent higher than the $10,612 margin earned by hospitals in competitive markets.

The study says it will take time to see how accountable care organizations affect hospital consolidation and prices. Still, the study concludes that this trend is leaving many payors and employers frustrated as they try to moderate healthcare costs.

Related Articles on Hospital Consolidation:

Calling it Off: Why Some Hospital Mergers Fail and Others Don't
Study: Health Systems May Need to Partner With Competitors on Complex, Low-Volume Procedures
Varying Degrees of Consolidation: Why Creativity Matters in Hospital Transactions

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